The FTSE 100-listed bookmaker said it will contribute its existing US assets as well as US$158mln of cash, which will be used to pay down existing FanDuel net debt which stood at US$76mln at the end of March.
Paddy Power Betfair will have 61% ownership of the combined business and FanDuel investors will own 39%. The Irish group will also have an option to take its ownership of the business to 80% after three years and to 100% after five years.
The Irish group aid the deal strengthens its opportunity to target the prospective American sports-betting market, after a US Supreme Court ruling opened the door to legal sports betting across the country last week.
FanDuel, which is headquartered in New York, had revenue of US$124mln and 1.3mln active customers in 2017, with a 40% market share of the US daily fantasy-sports market.
In morning trading in London on Thursday, Paddy Power Betfair shares were up 3.3% at 8,915p.